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The Prizes and Perils of Beacons

Should the history of beacon technology ever be written, 2014 runs a good chance of being anointed “Year 1.”  Though they came into our psyche in the Fall of 2013 when Apple made them a household word (and ecosystem), elementally beacons are small, low-cost pieces of hardware that either use battery-friendly, low-energy Bluetooth or somewhat more energy demanding Wi-Fi to connect and transmit messages and/or prompts directly to smartphones or tablets.

And, 2014 was the year that the technology really came into its own.  The MLB started using beacon tech this year, as did Virgin airlines, Walgreens, Macy’s, The Super Bowl, Tesco, Zatarain’s, Epicurious, The Gap, LevelUp, American Airlines, Marriott, Hilton and Lord and Taylor — just to name some of the more notable enterprises that jumped on the beacon bandwagon this year.

That beacons represent such a tremendous opportunity for merchants is obvious – it offers a chance to reach out and touch customers directly and influence their shopping experience before checkout. But more than a chance to lure, beacon tech offers retailers a chance to learn, specifically what kind of things specific customers like, when they shop, what type of offers they respond to, as well as a host of other actionable data that allows them to both tailor and individually perfect the consumer experience.

And yet, beacon tech also represents a risk for the retailer, as consumers believe that there’s a very fine line between being catered to but not stalked. For all its potential, beacon technology used incorrectly runs the risk of having a high creep factor associated with it. So, rolling it out and using it with consumers must be considered carefully.

So, where did beacons blast off and where did they, well, bomb out? PYMNTS has it all right here.

“We recognize the appetite for mobile experiences that cater to our customers’ immediate needs and preferences while also providing a seamless and effortless experience. Beacon technology is the future of retail marketing.” | Michael Crotty, Executive Vice President, Chief Marketing Officer, Hudson’s Bay Company and Lord & Taylor

In July, Hudson’s Bay Company (HBC) and its Lord & Taylor sister chain announced its intention to start using beacon technology – joining Walgreens, Macy’s, American Eagle, The Gap and a host of other retailers that made a similar move in 2014.

The HBC Department Store Group is working with Swirl to coordinate Bluetooth and Apple iBeacon software “to deliver targeted content and offers to consumers based on their specific location and behavior at the store."

The use of specific customer behavior is potentially a new twist on beacon use by HBC. The Swirl-enabled beacon platform is also designed to prevent anyone from interfering with the marketing broadcasts since it uses “proprietary encryption protocols to ensure that third parties cannot use or interfere with beacon broadcast information in any way."

“The airline industry has an incredible opportunity [with beacons], unlike maybe some other industries. We have a relationship [with consumers] right from that consideration point through to purchase and beyond and thinking about how we can use mobile and digital through that stage is critical.” | Kevin McQuillan, Head of BA.com & Mobile, British Airways

While enabling commerce on the ground, beacons also took to the friendly skies in 2014 as British Airways, Virgin and American Airlines all began integrating beacons into the travel experience. Trials so far have been limited – American Airlines’ experiments are only running at airports in Dallas and San Francisco, while Virgin began its limited rollout in London’s Heathrow with tiny beacon devices created by start-up Estimote.

BA’s launch at London’s Heathrow followed a brief test run in its head office, and remains a work in progress as its architects continue to look for the right balance between informing and irritating its customers.

“The potential to optimise mobile and digital technology is endless, but requires a careful balance of adding value without bombarding customers,” McQuillan noted.

BA’s beacons’ play comes as its customer base is going increasingly mobile – the airline reports that over half of its business comes through device-based purchases.

“By analyzing data from hundreds of our merchant partners, we’ve found customers typically spend  up to 25 to 40 percent more than average when they know they’re about to unlock a loyalty reward.” | Seth Priebatsch, Chief Ninja, LevelUp

In June, Boston-based payments firm, The LevelUp jumped onto the iBeacon bandwagon by building iBeacon support into apps that use the LevelUp platform as their foundation. The iBeaon integration opened up the opportunity for 4,000 merchants to keep LevelUp’s 1.5 million users upcoming rewards and offers top of mind.

PYMNTS.com caught up with LevelUp’s Kate Reynolds, head of research and development, about LevelUp’s new iBeacon push. Though still early in the launch, she noted the beacons were clearly seeing results.

"[Merchants] would see pretty dramatic lifts in their transactions and orders. Some people attributed it immediately to the iBeacon, others needed a little more convincing and needed to see a little more data to back it up and we’ve been tracking that in a number of different ways. What is clear is that when we turned on the iBeacons, transactions started to increase so people appreciated those reminders and went and redeemed those offers."

“We’re at the beginning of a retail revolution.  In the future, there won’t be any difference between physical stores and e-commerce.” | Adam Silverman, Principal Analyst, Forrester Research

One of the great pulls of the beacon technology is that it gives physical retailers access to something that their online counterparts have in abundance – data.  Amazon knows when you sign in, how often you buy, what types of objects languish in your cart – the sorts of things that a real-world retailer can’t really keep track of as easily.

But beacons begin to change that balance of data analytics power. When app users select what type of information they want to receive, the beacon technology makes it possible to build a profile of customers and how they interact in the physical retail environment.

It also allows merchants to build a more effective customer experience.

"If you ping people with messages indiscriminately, it quickly becomes spam,” said Henry Lawson, chief executive of autoGraph, a Seattle digital marketing company that develops beacon apps for retailers. “But if you’re selective, you can build up a level of trust directly with each consumer."

“iBeacon is a big milestone in creating the future of shopping, and it starts today with shopBeacon at Macy’s.” | Cyriac Roeding, CEO and Co-Founder, Shopkick

The beacon retail rush was foreshadowed slightly in 2013 when Macy’s announced at the outset of the holiday shopping season that it was working on a closed access pilot of iBeacon program with iBeacon enablement platform, Shopkick.

Fast forward a year, and Macy’s beacon program is going nationwide, and Shopkick’s CEO notes the ways that technology has recreated elements of retail’s more personal past.

““In a funny way, we’re going back 100 years when people were known by name,” said Roeding. “When they walked in, people knew who they were, and they were greeted. They knew what they might be looking for based on their previous purchases. We’re now doing that electronically with technology, and shopBeacon is doing that for Macy’s."

Shopkick was acquired in 2014, by SK Planet – part of SK Telecom, South Korea’s largest mobile carrier.

“It has the potential to be very cool, very innovative. But in the same regard, if it’s not executed properly, it could be interpreted as a violation of privacy,” he said. “So it’s really going to be a matter of how merchants, or organizations of any type for that matter, look to deploy it.” | Troy Land, VP Emerging Commerce, Fidelity National Information Services (FIS)

Like many emerging mobile-based products, beacons have a lot of potential, but also a lot of potential to go wrong. Improper execution could do more harm than good, Land told PYMNTS in a podcast interview in March 2014.

Beacons skate a fine line between being “cool and creepy,” Land noted, and is something merchants need to proceed cautiously with.

"Beacon really kind of caught our attention, one of many potential disruptors in the marketplace,” he said during the interview. “It’s still very new and very limited as far as the offerings."

However, he also noted that because it is gathering interest and is undeniably linked to better performance when used well, it is something that will likely stick around.

“Mobile is the key to making these beacon technologies work. It’s a digital sixth sense for us. Technologies like this really help us engage with the physical world around us more passively.” | Kevin Hunter, COO, Gimbal

Gimbal is a company that is betting big on beacons – it’s its business. And, as 2014 was winding down, beacon executives at Gimbal and other firms in the beacon space were feeling confident about their business’ future, even predicting that nearly 5 million beacons will be deployed over the next five years. While acknowledging that beacon adoption has been slower in the U.S. than in other geographies, execs expect to see those differences dissolve as more major retailers and brands jump on the beacon bandwagon.

These same execs acknowledge that beacons also come with upfront costs, and the challenges that others have pointed out with respect to consumer privacy and what kind of data can be gathered and how it can be used.

But given its success in other markets, and the growing interest of enterprises to try it, they remain bullish about its prospects among American consumers.

“We now have proof that consumers appreciate this value in a measurable way: They are more likely to keep apps that use beacon messaging, more likely to interact with advertised products in-store thanks to beacons.” | Todd Dipaola, CEO, InMarket.

As it turns out, consumers can fall in love with beacon technology.  According to a survey of 25,000 consumers done by InMarket, those who received marketing messages through InMarket’s Mobile to Mortar (M2M) iBeacon platform were 6.4 times more likely to keep an app on their phone, versus those who did not.

And, in addition to being more likely to keep an app on their phone, customers who used the iBeacon platform interacted more with advertised products and increased their in-store app usage.

The beacon-enabled apps in question allowed shoppers to make shopping lists, earn rewards and receive offers from merchants and brands. When consumers visited a participating store, notifications appeared on the lock screen of their device. All things that presumably added value to the consumer/merchant experience.

“Beacons don’t track you. Beacons are a way that any object can say ‘I am here,’ but you need to download the app. But that doesn’t mean there are no privacy issues – I think they need to do a really good job about explaining how the operating systems work.” | Jules Polonetsky, Director, Future of Privacy Forum

An early October 2014 investigation by BuzzFeed unearthed a major concern they had about the use of beacon technology.  The story documented an NYC advertising firm that planted about 500  beacons on the side of NYC phone booths without  informing the public.

Twelve hours later, the beacons were taken down, but concerns were already raised – what exactly are beacons and just how are they being used?

The answer…

"We’re seeing retailers and events using it for customer service-oriented issues more than anything else,” said Bill Schneider, director of product marketing for Urban Airship, a mobile marketing company. “Marketing was centered on advertising for the past 100-plus years, but as consumer screens become more intimate, those old advertising methods are becoming less effective."

Beacon defenders note that beacons can’t just reach out and touch one’s phone – generally speaking the beacon enabled notification must go through apps that consumers download and that can be deleted if and when the push notifications become too onerous.

“We think this is a rapidly growing, potentially very large market with high margins, in which you can build a really meaningful business.  To some extent I see this as an infrastructure build-out play, where Beacons are the routers and pipes of a new network infrastructure on which we’ll see some very interesting applications.” | Max Niederhofer, Sunstone Capital

Sunstone Capital’s Max Niederhofer thinks beacons are the next big thing in technology and he isn’t afraid to put his venture capital dollars behind his beliefs. In July of 2014, Sunstone invested $2 million in Kontakt.io, a Polish Beacon platform provider.  The Krakow-based business offers both hardware customization and open API and SDKs for iOS and Android applications of beacon technology.

"Many deployments are still at proof-of-concept stage, but we have seen some phenomenal initial results,” says Niederhofer. “From a VC perspective, this is a bit like Cisco in the late ’80s. We’re building the hardware and software that is the backbone of the new network."

Niederhofer also noted that this investment will likely touch off one of many as Sunstone looks to push more deeply into the “endless” possibilities for the killer beacon app.

In 2014, beacons were the fireworks of the retail ecosystem — bright and shiny, with a high potential to delight the crowd of eager onlookers. But just like firecrackers, they have to be handled with care, by trained professionals and in the right setting.

But then again, 2014 is only Year 1, and beacons are evolving as retailers and consumer are informally collaborating on perfecting personalization – and even making payments part of the process. Let’s hope that 2015 is the year that we’ll see more and more instances in which beacons become the friendly reminders that add value to our payments and commerce and experience.

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The Payments 2022 Study: Building A High-Performance Payments Team For Fraud Detection, a PYMNTS collaboration with Stripe, examines how digital platforms of all sectors and sizes plan to develop their anti-fraud teams as part of their their broader growth and development strategies. Drawing from an extensive survey from approximately 250 payments heads at digital platforms in the U.S. and abroad, our study analyzes how poor anti-fraud capabilities can harm platforms’ long-term growth strategies, and how they can build high-performing teams to tackle these challenges.

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